California Recycling Program Suffers Rampant Fraud

California’s recycling program for aluminum cans and plastic containers suffers rampant fraud, with enterprising criminals claiming multiple refunds for a single recycled container and others bringing in truckloads of containers from out of state to claim illegal refunds.

Budget-Busting Losses

California officials estimate recycling fraud costs state taxpayers $40 million per year. Private analysts suggest fraud is more rampant, costing state taxpayers up to $200 million per year.

Either way, California’s recycling program is losing money, with fraud being responsible for much of the losses. Last year the program racked up costs $100 million above revenues.

'Typical’ of Environmental Programs

“This is fairly typical of California’s environment-focused programs. The recycling effort confuses doing the right thing with doing the thing right,” said Tom Tanton, president of the California-based energy consulting firm T2 & Associates.

Tanton said California can benefit from recycling, but not in the way the state has gone about doing it. Under the law, the state charges consumers a deposit on bottles and cans sold within its borders, and then refunds that deposit when the container is brought to a recycling center.

“Encouraging recycling in the way it’s done, by faux-market mechanisms placing an artificially high redemption value on bottles and cans, almost guarantees fraud, such as the redemption of huge numbers of out-of-state bottles,” Tanton said.

“I’m not surprised, nor is it the first instance of fraud in a California government-run program ostensibly to protect the environment,” he observed.

Trucks Rolling In

Schemers are taking advantage of the 2,300 recycling centers that redeem deposits on cans and bottles. In just a three-month period during 2011, the California Department of Food and Agriculture counted 3,500 vehicles, including 505 rental trucks, driving out-of-state cans and bottles into the state to collect the high redemption prices.

In 2012 the California Department of Justice filed 10 criminal cases against fraud rings collecting money for cans brought in from outside the state.

Solution Suggested

Tanton recommends allowing free markets to shape recycling efforts.

“It’s time Californians realize that their government is incapable of effectively and efficiently running market-based programs, and the state should leave recycling programs to the actual market,” he said.

If the state nevertheless insists on government-created recycling mechanisms, it can do far better than its current system, said Tanton. California should model its recycling program on those in several other states, which require a marker on each bottle that indicates whether it includes the state redemption charge, Tanton explained.

Tanton said this would “most importantly enforce the requirement that the program be self-financed. That means when the paid-in redemptions are paid out, no further redemptions occur. There should never be a drain on the general budget from the bottle recycling program.”